FIF (Foreign Investment Fund)

The Foreign Investment Fund (FIF) rules are New Zealand tax laws that apply to NZ tax residents who hold overseas investments exceeding NZ$50,000 in total cost. The FIF regime ensures New Zealanders pay tax on foreign investment income, preventing tax avoidance through offshore holdings. FIF rules apply to overseas shares, foreign ETFs, and interests in overseas unit trusts.

For 2026, the NZ$50,000 threshold (unchanged since 2000) is calculated on the total cost basis of all foreign investments combined. Most individual investors use the Fair Dividend Rate (FDR) method, which taxes a deemed 5% of the opening market value of FIF investments at your marginal tax rate—regardless of actual dividends or capital gains. Alternatively, you can use the Comparative Value (CV) method, which taxes actual gains (closing value minus opening value), and choose the lower of FDR or CV each year. Australian-listed companies are exempt from FIF rules. FIF income is reported in your annual tax return and taxed at your personal marginal rate (10.5%-39%). The FIF rules can tax you even when no dividend is paid, as FDR creates deemed income.

Real-World Example If Emma holds US$60,000 (NZ$100,000) in US ETFs at the start of the 2026 tax year, using FDR method she pays tax on 5% × NZ$100,000 = NZ$5,000 deemed income. At a 33% marginal rate, she owes NZ$1,650 tax, regardless of whether the ETFs paid dividends or her actual returns. If her ETFs actually fell 10%, she'd still owe tax on the deemed 5% gain.